The pound rose to the strongest since November 2008 against the euro as concern that legislation needed for Europe’s permanent bailout fund will be delayed boosted demand for the relative safety of the U.K. currency.
Sterling gained the most this month versus the dollar amid speculation minutes of the Federal Reserve’s June meeting to be released today will show U.S. policy makers are moving closer to expanding their stimulus program, weakening the greenback. U.K. government bonds rallied, with the 10-year yield dropping to the lowest level in a month.
“Investors are looking at jurisdictions outside of the euro area such as the U.K.,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Sterling isn’t as fully valued as the Scandinavian currencies, and the Swiss franc is off the agenda.”
The pound advanced 0.2 percent to 78.82 pence per euro at 4:20 p.m. London time after appreciating to 78.71 pence, the strongest level since Nov. 3, 2008. The U.K. currency rose less than 0.1 percent to $1.5521. It earlier climbed as much as 0.4 percent, the most since June 29.
Germany’s top court said yesterday a decision on whether to suspend legislation for the euro bloc’s permanent bailout fund and fiscal treaty may take months rather than weeks due to the complexity of the ruling.
The euro region is in an “unusually critical phase” and the global economy would be hurt by a slump in Europe, German Finance Minister Wolfgang Schaeuble said today in an interview on Deutschlandfunk public radio.
Sterling has gained 4.4 percent in the past year, the third best performer after the yen and the dollar among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The Fed will today release minutes of its June meeting when it extended the maturities of assets on its balance sheet and said it stood ready to take further action.
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 1.56 percent after declining to 1.55 percent, the lowest since June 1. The 4 percent bond due in March 2022 rose 0.255, or 2.55 pounds per 1,000-pound face amount, to 121.795.
The U.K. is scheduled to sell 3.5 billion pounds of bonds maturing in September 2022 at an auction tomorrow.
U.K. government debt has returned 3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries rose 2.5 percent, and German bunds climbed 3.6 percent.
The pound’s advance through the level of 79 pence per euro has opened up the way for a rally toward 77.84 pence, according to Michael Hewson, an analyst at CMC Markets U.K. Plc.
The level of 77.84 percent represents a 61.8 percent retracement of the currency’s decline from 2007 to 2008, London-based Hewson wrote in a note to clients.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.